SKL vs SCT 'Head to Head' (FY2021 perspective)
Quote:
Originally Posted by
Snoopy
I have been looking at Skellerup as a 'measuring stick' on the Scott Technology thread. While not directly comparable in their customer target markets, there is an astonishing similarity in certain aspects of their operations. I thought Skellerup shareholders might be interested, particularly as these admittedly snapshot figures indicate that Skellerup is perhaps the slightly better buy on the market today.
|
Skellerup |
Scott Technology |
Operational Sector |
Manufacturing |
Manufacturing |
Total Employees |
'nearly 800' |
784 |
Manufacturing Hubs |
NZ, Australia, Europe, North America, Asia |
NZ, Australia, Europe, North America, Asia |
Share Price 29-11-2019 |
$2.34 |
$2.30 |
Market Capitalisation 29-11-2019 |
$456m |
$178m |
Capitalised Dividend Valuation per share (2015.5 to 2019.5) |
$1.81 |
$1.65 |
Declared earnings (FY2019) |
$29.063m |
$8.604m |
Normalised earnings (FY2019) |
$29.233m |
$9.464m |
Normalised eps (FY2019) |
15.1c |
12.2c |
Normalised eps growth over 4 year period (FY2015 to FY2019) |
+36.0% |
+15.1% |
Historical PE (FY2019) |
15.5 |
18.9 |
dps (paid during FY2019) |
7c+5.5c |
6c+4c |
Earnings Payout Ratio (excluding DRP) |
83% |
82% |
Gross dps (paid during FY2019) |
8.5c+6.6c |
8.3c+5.5c |
Historical Gross Dividend Yield (using Share Price 29-11-2019) |
6.5% |
6.0% |
Shareholder Equity (based on equity at EOFY2019) |
$178.392m |
$111.852m |
ROE (based on equity at EOFY2019) |
16.4% |
8.5% |
Sales (FY2019) |
$245.792m |
$225.093m |
Net Profit Margin (FY2019) |
11.9% |
4.2% |
Total Bank Debt (last balance date EOFY2019) |
$46.213m |
$16.404m |
MDRT (Based on bank debt at balance date EOFY2019) |
1.6 years |
1.9 years |
Having said I think Skellerup is the slightly better buy, I don't consider either as 'cheap'. A 36% growth rate at SKL over a four year period equates to an averaged annual growth rate of:
1.36^0.25 = 1.08, 0r 8% per year.
On an historic PE of 15.5, that 8% four year historical annual growth rate seems to support such a valuation. Others on this forum have suggested that in this world of low interest rates, we should adjust our expectations of PEs and they should be higher. Personally I believe that because of global trade wars and tariffs on goods there should be no such adjustment for manufacturing companies.
We Skellerup shareholders have certainly had a good year. But 'good' is a word that must always have context. I find it useful to have a 'measuring stick'. Scott Technology is such a stick. Different in that it sells complete packages and not components. But the same in that both companies rely on Intellectual Property and trusted staff that can turn that knowledge into profits.
|
Skellerup |
Scott Technology |
Operational Sector |
Manufacturing |
Manufacturing |
Total Employees |
813 |
622 |
Manufacturing Hubs |
NZ, Australia, Europe, North America, Asia |
NZ, Australia, Europe, North America, Asia |
Share Price 27-11-2021 |
$6.06 |
$3.37 |
Market Capitalisation 27-11-2019 |
$1,183m |
$267m |
Capitalised Dividend Valuation per share (2017.5 to 2021.5) |
$2.25 |
$1.27 |
Declared earnings (FY2021) |
$40.175m |
$9.527m |
Normalised earnings (FY2021) |
$40.243m |
$11.146m |
Normalised eps (FY2021) |
20.5c |
14.2c |
Normalised eps growth over 5 year period (FY2016 to FY2021) |
+72.3% |
+18.3% |
Historical PE (FY2021) |
29.5 |
23.7 |
dps (paid during FY2021) |
7c+6.5c |
0c+2c |
Earnings Payout Ratio (excluding DRP) |
68% |
14% |
Gross dps (paid during FY2019) |
8.96c+7.76c |
0c+2c |
Historical Gross Dividend Yield (using Share Price 27-11-2021) |
2.76% |
0.59% |
Shareholder Equity (based on equity at EOFY2021) |
$196.149m |
$98.195m |
ROE (based on equity at EOFY2021) |
20.5% |
11.4% |
Sales (FY2021) |
$279.615m |
$216.234m |
Net Profit Margin (FY2021) |
14.4% |
5.2% |
Total Bank Debt (last balance date EOFY2021) |
$24.409m |
$10.920m |
MDRT (Based on bank debt at balance date EOFY2021) |
0.61 years |
1.0 years |
A 72.3% growth rate at SKL over a five year period equates to an averaged annual growth rate of:
1.723^0.2 = 1.115, or 11.5% per year.
Perform the same exercise on SCT and you get
1.183^0.2 = 1.034, or 3.42% per year.
This goes some way to explaining why SKL is sitting on a PE of 29.5 verses 23.7 for Scotts.
Some more observations:
a/ If you compare my quoted reference exercise from the FY2019 perspective, both companies have reduced their bank debt to something that is almost insignificant.
b/ ROE at SKL remains about double that at SCT, although both have improved.
c/ SKL coped with the initial Covid-19 hit better than SCT, because SKL mainly supplied essential components whereas SCT 'capital projects' were deferred. But SCT took the opportunity to 'right size' the business, losing around 200 staff compared to the FY2019 pcp.
d/ Net profit margin at SKL remains around triple that of SCT (c.f. pcp), although both have improved.
Another comparison of note is to see by how much the market price exceeds the 'capitalised dividend valuation' price. This difference is one measure of the 'growth premium' accorded to each company by the market.
SKL: Growth Premium = $6.06 - $2.25 = $3.81 => Growth Premium is 63% of share price
SCT: Growth Premium = $3.37- $1.27 = $2.10 => Growth Premium is 62% of share price
Depending on how you see the outlook for both companies, you might interpret these figures as showing both companies being equally overvalued ;-P
The one difference that does not show in these figures is the effect of the 'change of direction' for Scotts, under their new CEO. This is steering the company towards more standardised products, away from one off builds. It will take a couple of years for this change to flow through to margins, bar no more shock Covid-19 interruptions (gulp!)
Concluding the Comparison
Both companies are conservatively financed, which is always good in a world where business opportunities are uncertain. Scott's cut their dividend payout drastically to achieve this, but Skellerup did not have to. I see Skellerup as the more resilient earner. The growth story at Skellerup is around incremental improvement and bolt on acquisitions. Whereas at Scotts, growth is more around 'executing the Scott 2025 vision plan' (more repeat sales of modularised products). I see the Skellerup path as more certain (they have a great knack of retaining customers as development partners), whereas Scotts are being more affected by macro-economic events. But I think if Scott's can co-ordinate the growth in their diverse international 'centres of excellence', then it is Scott's that have the most growth potential over the next two to three years. Looking beyond that time frame though, it is hard to imagine that Skellerup will be bettered on the long term growth path. If Skellerup are overvalued, there is a case to be made that they are not significantly more overvalued than Scott's are. The bonus for Scott shareholders is that they are always on the verge of cashing in a figurative 'mega lottery ticket'. If Scott's automated beef boning room project can be nailed, then there are a good decade of highly profitable installation projects lined up in Australia and the USA to follow up. So far, the 'mega lottery ticket application' (of which the automated beef boning room is simply the current one) has not kicked in for Scott shareholders. But we always live in hope! Being a 'glass half full' person, I am calling Scotts as the better value investment on the market today. Yet as a long term holder, I would feel more comfortable with Skellerup in my portfolio. Yes the price is dear, for both. But good things tend not to come cheap!
SNOOPY
discl: hold SCT and SKL